Annual Report 2003
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Annual Report 2003 Annual Report 2003 Group Headquarters 10 Dunkeld Road Perth PH1 5TW Scotland T +44 (0) 1738 442 111 F +44 (0) 1738 643 648 www.stagecoachgroup.com 2003 STAGECOACH GROUP PLC Company No. SC100764 Contents 1 Highlights 11 Overseas Bus 26 Corporate governance 2 Group overview 12 Rail 30 Remuneration report 4 Chairman’s statement 14 Investments 35 Auditors’ report 6 Chief Executive’s statement 15 Corporate Social Responsibility 36 Accounts 8 Operating review 19 Finance Director’s review 75 Shareholder information 8 UK Bus 22 Board of directors 76 Five year financial summary 9 Coach USA 23 Directors’ report Stagecoach Group is a leading international transport provider, committed to developing innovative solutions across our operations Highlights 2003 Business highlights Financial highlights ı Continued profitability in all four key operating divisions ı Turnover »2,077m (2002 ^ »2,111m) ı Good progress in restructuring Coach USA ı Total operating profit* »146m (2002 ^ »167m) ı c. »300m of disposals announced post year-end ı Profit before tax* »113m (2002 ^ »107m) ı Terms of new franchise at South West Trains finalised ı »575m of exceptional write-downs from Coach ı Improved operational performance benefiting Rail Division USA review resulting in a statutory loss before tax of ı Margin improvement at UK Bus »500m (2002 ^ profit of »42m) ı Strong revenue and volume growth in New Zealand ı Earnings per share* 6.4p; up from 6.3p ı Free cash flow up 18% to »218m ı Net debt down »215m to »560m ı Full year dividend 2.6p (2002 ^ 2.6p) * excluding goodwill amortisation and exceptional items 1 UK Bus Coach USA Group overview 2003 Stagecoach has around 16% of the UK Coach USA is one of the largest providers Bus market making it one of the largest of motorcoach, charter, tour and bus operators in the UK. There are over sightseeing services in the United States. 90 depots across the country, principally The business is currently being restructured focused on providing scheduled passenger to concentrate on the substantial North services. East and North Central regions. Turnover* »598.4m »603.0m Operating Profit* »67.0m »14.0m No. of VehiclesÀ 7,100 12,600` No. of EmployeesÀ 17,900 10,600 * Turnover and operating profit figures are for the year ended 30 April 2003. Operating profit refers to operating profit before goodwill amortisation and exceptional items À Vehicle and employee numbers are as at 30 April 2003 ` Includes driver-owned cabs # Stagecoach’s share 2 Overseas Bus Rail Investments Stagecoach New Zealand and Citybus Our Rail division comprises three subsidiary The Group owns 31.2% of the ordinary are the largest providers of scheduled bus operating companies: South West Trains shares of Road King Infrastructure services in New Zealand and on Hong (one of the largest UK rail franchises), Limited which operates over 1,000km of Kong Island respectively. There are also Island Line (Isle of Wight) and Sheffield toll roads throughout China. small bus operations in mainland China Supertram (which runs 29km of rail routes and the Group operates Fullers Ferries in across the city). Stagecoach holds a 49% equity stake in Auckland, New Zealand. The Hong Kong The Group also holds a 49% equity stake thetrainline.com which operates a rail and China operations were sold by in Virgin Rail Group which operates the Internet and call centre booking service Stagecoach in June 2003. West Coast Mainline and CrossCountry rail in the UK. franchises. »51.0m »132.3m »413.6m »276.1m# n/a »11.0m# »11.2m »19.1m »38.2m »7.2m# »10.5m# »(4.3)m# 1,050 1,100 1,300 Road King Infrastructure 1,850 3,250 5,250 Limited 3 Stagecoach Group has made positive progress this year towards achieving its key strategic objectives despite challenging issues within the transport sector and a difficult economic environment. Chairman’s statement 2003 Stagecoach Group has made positive progress this year towards prospects for the Group and, based on continued strong and achieving its key strategic objectives despite challenging issues stable cash flows and profits within the business, we will look within the transport sector and a difficult economic environment. to increase the dividend each year. Across the Group, we are seeing strong cash generation from Our two key priorities in recent months have been the each of our four key operating divisions and all are trading restructuring of our Coach USA operations following a profitably. In the UK, our bus division has had a successful year comprehensive business review, and finalising the new South and is delivering increased operating margins with solid revenue West Trains franchise. Focused management action on both and passenger volume growth. We have agreed terms with the of these issues will deliver greater stability and certainty. Strategic Rail Authority (‘‘SRA’’) for a new three-year franchise at South West Trains, which is one of the UK’s largest rail At Coach USA we remain on course to deliver on our key franchises. We are awaiting final approval of this new franchise restructuring objectives within the 12 to 18 month timetable we agreement from the Government. Restructuring of our Coach set out in December 2002 and this will produce a smaller but USA division is progressing well. Earlier this month, we nevertheless substantial and more robust business. completed the disposal of our Citybus business in Hong Kong, while our New Zealand bus business continues to deliver strong We believe the financial and commercial terms we have agreed growth. with the SRA for the new franchise at South West Trains will deliver a good and predictable return for our shareholders. The Group’s strong cash flow generation, coupled with the favourable movement in exchange rates, has allowed us to Virgin Rail Group (in which we have a 49% interest) is reduce debt for the long-term benefit of the business. Net debt continuing to work with the SRA with a view to negotiating new reduced by »214.6m in the year ended 30 April 2003, from long-term commercial arrangements for both the West Coast »774.6m to »560.0m. Subsequent to the year-end we have and CrossCountry franchises. Both franchises are presently announced disposals with a gross consideration of approximately receiving SRA funding on the basis of a one year budget set by »300m. Of these proceeds, approximately »20m relates to the SRA for the period to February 2004. We remain confident deferred consideration and the remainder will initially be used that new franchise terms can be agreed that will secure to reduce Group debt. shareholder value for Stagecoach. Turnover for the year ended 30 April 2003 was »2,076.6m Our UK Bus operations are producing revenue and passenger (2002 ^ »2,111.4m). Total operating profit before goodwill volume growth, most notably where we work closely with amortisation and exceptional items was »146.4m forward-looking local authorities. We have been particularly (2002 ^ »166.6m). Earnings per share on an equivalent basis successful in the London market. We are also pleased that the were up at 6.4 pence (2002 ^ 6.3 pence). Government has taken forward our ‘‘Kick Start’’ proposals for targeted funding to support the introduction of new services The Board of Directors is recommending that the total dividend and help reinvigorate the UK Bus network. for the year is 2.6 pence per share (2002 ^ 2.6 pence). This comprises the interim dividend of 0.8 pence (2002 ^ 1.3 pence) In the Overseas Bus division, performance at our New Zealand and a proposed final dividend of 1.8 pence per share businesses, where we are seeing strong growth, continues to be (2002 ^ 1.3 pence). The Board has firm confidence in the future very satisfactory. Citybus, our Hong Kong bus operation, has 4 Robert Speirs Chairman been an excellent investment for the Group since 1999. However, I was happy to accept the invitation, in December 2002, to the Board received an approach for the business and felt it was continue as Chairman of the Board. We have been working appropriate to review the strategic options for Stagecoach Group closely to refocus the company and I am confident Stagecoach in the region. In view of the limited opportunities to develop Group has a dedicated senior management team and a significantly elsewhere in other Pacific Rim countries and the committed Board that will ensure the Group continues to thrive long-term prospects for the business in Hong Kong, we believe and deliver shareholder value. the offer was a good one and that selling the business at this time was in the best interests of shareholders. We have a clear strategy for the Group and are on schedule with our sales programme and restructuring at Coach USA. The sale of Citybus has put the Group in a strong financial position, further ROBERT SPEIRS de-risking the Group’s portfolio, and will allow management to Chairman focus on developing our UK bus and rail businesses, a smaller but 25 June 2003 more robust North American business and our successful New Zealand operations. The Group continues to be a leading international transport company with a strong portfolio of cash generative businesses. Following the business review in North America, I was delighted to announce six months ago that Brian Souter had taken up the position of Chief Executive on a permanent basis. His energy and entrepreneurial vision have been the driving force behind the Group and the considerable work he has done in restructuring our US operations is laying firm foundations for a stronger North American business. 5 Management has been clearly focused on the twin priorities of restructuring Coach USA and securing the new franchise at South West Trains.